In a report released today the organisation described the UK’s deficit reduction plans as appropriate but said ‘supporting long-term growth and safeguarding social needs’ remained important.
It also highlighted the housing market as a ‘significant risk’ to the economic recovery and called for early intervention by the Bank of England if house prices continue to rise.
“There is no room for complacency, as significant risks are appearing on the horizon. On the domestic front, productivity remains weak and house price inflation is broadening,” said IMF managing director Christine Lagarde.
“This is why we are calling upon the Financial Policy Committee of the Bank of England to pursue macroprudential measures early and in a gradual fashion, as the first line of defense against risks to financial stability arising from the housing market.
“But rising house prices fundamentally reflect demand that greatly exceeds supply. Addressing imbalances in the housing market by alleviating supply-side constraints will require further measures to increase the availability of land for development and to remove unnecessary constraints on land use.”
Rob Wood, chief UK economist at Berenberg, said the IMF was right to focus in on the UK’s housing market.
“The UK has made good progress in strengthening the resilience of its banks and financial sector through its newly-established regulatory architecture. Such actions will help ensure its financial sector remains a global public good.
“Housing was the subject of the meatiest recommendations with Lagarde and her team appealing for the BoE to move early to head off housing risks at the pass. Moving early is key advice. As the IMF says, the new-fangled macroprudential policy tools the BoE can reach for are untested. Waiting until the last minute before finding out that the credit rationing gun is firing blanks would be a serious error.”
Mark Littlewood, director-general of the Institute of Economic Affairs, said the restrictions on house building in the UK remained problematic.
“The IMF are right to identify the housing market as a key structural problem,” he said. “However, it is irresponsible to stoke demand for housing when land-use planning fundamentally restricts the new supply we so desperately need.
“If the government fail to fundamentally liberalise planning restraints, they risk destroying the dreams of those who want to afford to own their own homes, driving up the cost of living, and choking off growth in the most successful parts of the UK.”